7/28/2019 Factors Involved in Fluctuation of Crude Oil Prices

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Presented to: Sir Bilal EllahiBy: Suhaib Anwar - 1506

Factors involved in Fluctuation in Crude Oil Prices

Crude oil or Black gold Is the blood line of almost all countries, it not only helps in transportation but isheavily used for running manufacturing industries, as different type of energy producing fuel, bitumen(important material of road and infrastructure construction) and more then 4000 petro chemical

products like plastic, rubbers and other chemicals are all produced using crude oils.

So the price change of crude oil not only affects the oil producing countries but also other oil /byproducts consuming countries and GDP growth of any specific country depends upon crude oildirectly or indirectly. Following are some major factors which affects the prices of crude oil.

Role of Opec:Tweleve m ember Organization of the Petroleum Exporting Countries (OPEC) was found in 60s toprotect the interest of oil producing countries, although roughly 40% of daily oil production is done byOPEC members but they have formed a cartel to drive the world s oil prices and protect interest of OPECmembers.

Another factor of OPEC being a cartel is presence of swing producers in OPEC which means in case of shortage of supplies swing producers can increase their production.

Demand and supply:Crude oil also follows basic demand and supply rule of economics. USA consumes almost 22 % of globaloil production which makes it the largest consumer of crude oil of the world, so any news in USAs GDPfactors (no matter good or bad) effects the over all crude oil price it reflects increase in demands in US.

In the same way demand in huge emerging markets like Chine and India is also affected by change inGDP factor, whether it is unemployment, inflation or Government spending.

In the same way the demand of fuel is also dependent upon the inventories kept by countries, so thatdoes not mean that a recovering economy will straight away increase the demand but first it willconsume the inventories maintained.

Geo Political concerns:Possibility of crisis In oil producing or consuming countries can also suddenly increase oil prices , forexample US Iraq invasion caused a sudden hike in oil prices as oil producing countries failed to satisfythe consumers on their uninterrupted supplies.

Natural and Manmade disasters:Natural and man made disasters can also become a cause in oil price change, Oil markets closely

observes US hurricane season to see what kind of impact it will have on oil supply. Katrina in 2005caused a major oil price hike as it affected offshore production in gulf of Mexico and oil refineries inTexas.

USD $ Value:As all commodities are traded in USD so a rapid appreciation or depreciation of USD value can also have

an impact on oil prices.